- By Faisal Islam
- Economics editor
Image source, Getty Images
Rachel Reeves has said a Labour government would have to make “almost impossible trade-offs” on tax and spending if the economy fails to grow.
The shadow chancellor said expanding the economy would be the only way to increase cash for public services.
“Unless you get growth…you’re always going to have to make almost impossible trade offs”, Ms Reeves told the BBC.
She made the comments ahead of a major speech to business and finance leaders later on Tuesday.
In her speech at the annual Mais Lecture in the City in London, the shadow chancellor will vow that Labour will seek to bring about a “new chapter in Britain’s economic history”.
She will promise to reform the Treasury as part of a possible Labour government’s economic policy.
“I remain an optimist about our ability to rise to the challenges we face,” she will say.
The Conservatives have suggested Labour had “no plan – just more borrowing and more taxes”.
Ahead of her address, Ms Reeves told the BBC that Labour would not be able to do things “as quickly as we we wanted” if voted in, adding that she was “under not illusions” of the challenges
“In the end, you can’t just tax and wait a better public services,” she said.
“You’ve got to grow the economy and reform those public services. Growth is essential to do everything else that a Labour government would want to do, including investing in the public services which are frankly on their knees after 14 years of Conservative government.”
In her speech, the shadow chancellor is expected to confirm new details about Labour’s approach to controls on borrowing, the setting of interest rates by the Bank of England and how it would return the economy to long term growth.
It is expected she will also discuss a new industrial strategy.
The Mais lecture is a prestigious gathering where chancellors, shadow chancellors and Bank governors have outlined their principles for running the economy in front of an audience of City financiers and economists.
In their time Nigel Lawson, Gordon Brown, George Osborne and then Chancellor Rishi Sunak have laid out their economic strategy for years to come.
The shadow chancellor is to promise reform to the powerful institution she hopes to head, The Treasury.
Ms Reeves suggests the Treasury has not been sufficiently focused on growing the economy in its tax and spending policy. She proposes to bring back a unit focusing on growth and high productivity to feed into key decision making for Budgets and spending reviews.
The official forecaster, the Office for Budget Responsibility, could also get a beefed-up role in advising on long-term spending that helps growth.
This will acknowledge and fix a problem at the Treasury rather than “set fire to it”, aides said – an apparent reference to the brief premiership of Liz Truss, whose tenure caused caused turmoil on the financial markets.
The aim will be to promote business investment and long-term growth. This aim is shared by almost everybody in politics, including the current government, but Ms Reeves suggests the world has changed after the pandemic and energy crisis, and this points to a need for a more “active government”.
Some of the rhetoric chimes with the so-called Bidenomics policies pursued in the White House. But the shadow chancellor hopes to achieve the same green growth, without the significant levels of borrowing. There is not expected to be new tax and spending policy announced at the speech.
Instead, investment will be needed from private companies across all of industry, enticed by significant changes to planning and industrial policy. Tuesday’s lecture is part of a two-way charm offensive between the opposition and major businesses, as an election starts to loom.
“I remain an optimist about our ability to rise to the challenges we face,” she will say. “If we can bring together public and private sectors, in a national mission – directed at restoring strong economic growth across Britain.”
Ms Reeves will talk about a “new chapter in Britain’s economic history,” adding “unlike the 1980s, growth in the years to come must be broad-based, inclusive and resilient”.
The Confederation of British Industry’s chief economist Louise Hellem said it was “right that the strongest route to sustainable growth is unlocking business investment.”
“With a potential cocktail of squeezed public finances and limited fiscal headroom, creating the right operating environment for firms to generate the ideas, jobs, and opportunities that the UK needs to thrive will be the defining challenge for whoever forms the next government,” she said.
Earlier this month, Chancellor Jeremy Hunt set out the government’s tax and spending plans in his Budget, including a cut to National Insurance and an expansion of child benefit.
The Conservatives had previously said that Labour “didn’t have a plan” to pay for their proposed policies.
On Tuesday, chief secretary to the Treasury, Laura Trott, said: “Rachel Reeves may be promising a ‘new chapter’, but it will be the same old Labour.
“No plan – just more borrowing and more taxes – exactly how the last Labour government wrecked our economy. “Only Rishi Sunak and the Conservatives have a plan that will deliver a stronger economy for the long term and a brighter future for our children,” she added.
